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Building an IT Foundation for a Sustainable Future

June 29th, 2005

If you make business software decisions for an organization in the construction industry, or any of the industries closely affiliated with the construction industry, the future of your business can be summed up in one word: change. Demand is huge, capital is tight, and expectations are higher than ever.

All of which makes for a challenging environment when it comes to sustaining and building a construction business.

Just consider the residential housing construction market. Residential investment in the United States currently accounts for 5.8% of the nation’s gross domestic product, which is the highest it’s been since the end of World War II. Today, in lieu of returning from wars abroad, a generation of Americans is building second homes and renovating and expanding its current residences at a market-altering pace. Thanks to low interest rates, the country’s investment in housing has climbed steadily over the past several years. The housing boom is, so far, approximately 40% larger than the technology craze of the mid- to late 1990s.

Like most service-based companies, construction firms are looking to achieve a certain gross margin on their projects and operate more efficiently. The key to profitability is to keep costs in line with budgets and manage the multitude of documentation related to projects. Project managers at construction firms frequently struggle to stay on budget and manage actual costs, schedules and paperwork. If project managers can’t tell at any moment if their project is on track, they run the risk of not meeting the schedule, or worse, eroding margins on the project. Similarly, accounting and business owners need strong financial systems to manage profit and loss and the financial aspects of the business.

During this construction boom, companies are looking for increased productivity and the ability to manage job cost, schedules, change orders and project documentation more effectively, and measure results more accurately. By taking advantage of software and information technology to improve and support business processes, companies can improve profit margins and complete more projects with less administrative overhead.

Make Wise Investments

One of the factors that will likely differentiate businesses that succeed in the future is a willingness to make strategic investments in software and technology that address the challenges faced by businesses throughout the construction industry.

Currently, the construction industry is lagging behind in spending and investment versus all other industries. As of 2003, the entire industry invested a mere $1.2 billion in information-processing equipment. To put that in perspective, the construction industry accounts for approximately 6% of the nation’s private employment and constitutes only 0.7% of overall private IT investment.

The wisdom of keeping projects on budget and on time sounds simple, but many construction firms are hindered by multiple software systems, manual processes and lack of key business reporting. Some companies aren’t even using current technology and are still maintaining information in multiple spreadsheets. Companies can’t compile the information they need to assess their business in real time. Old systems may feel familiar, but when information is nonexistent or not timely, planning suffers and firms are vulnerable to failure and low profit margins. However construction businesses that have made IT software investments wisely have reaped considerable benefits.

Solutions That Address Challenges

The challenges faced by today’s construction companies are enormous.

For starters, they must deal with complex financial and operational requirements, such as job cost, project management, financials, payroll, material management and service management. Because these businesses operate on fixed-bid contracts and low margins, they must continually manage the changing dynamics of a construction project, change orders, costs versus budgets, schedules and documentation to ensure a successful and profitable project. To complicate matters even more, construction businesses often rely on disparate financial, job cost and project management systems, which decrease the efficiency of their organization.

Many construction companies in Georgia have overcome the industry’s inherent challenges by investing in and deploying business solutions developed to thrive in complex and dynamic environments.

One general contractor chose a solution that enables it to accommodate the dramatic growth it has experienced over the past few years. The solution supports its unique business processes, something the company’s homegrown UNIX system wasn’t able to do. As a result, the business has increased its billing accuracy, decreased redundant data entry and improved overall employee productivity.

Another mechanical contractor was struggling to accurately measure efficiency and performance due to the fact that it has several divisions, locations and types of services. To address its challenges, the company selected a solution that could measure performance at every level within the organization. Thanks to the solution’s ability to quickly highlight critical business information, the company has increased both productivity and profitability, providing information in real time and in a single system. Project managers can use the system to set up projects, perform buyouts and update costs. They have access to real-time and more accurate job costing. On the financial side of the business, project manager updates and input flow through into finance, giving the organization a complete and accurate picture of the performance of all projects and service work across the enterprise.

A specialty distributor for construction products realized its old software systems no longer met its business requirements. After making a strategic, informed investment, the business now has better visibility into its shipping processes, exerts greater control over inventory, employs real-time reporting to analyze historical transactions and determines actual lead time to delivery. It also deals more efficiently with federal, state and local accounting methods and requirements.

Keep It Local

Although all the construction businesses cited in this article faced different challenges and realized different benefits, there’s one thing they all have in common: They all worked with local IT consultants affiliated with a major technology vendor.

These businesses worked closely with local consultants with a proven track record for helping construction companies take full advantage of technology on the market today. By working with a consultant who understands the community where the business lives and breathes, construction companies can have the best of both worlds: globally proven technology with a local touch and industry expertise.

Construction clients should have the following criteria on their checklist when evaluating current and future technology products:

* Major software vendor. With rapidly changing technology, customers need to align themselves with a vendor that has the resources and capitalization to move forward as technology changes.

* Functionality. Companies need to purchase solutions that meet the functional requirements of the organization.

* Flexibility. Given the dynamics of change, companies need to purchase solutions that can be tailored to their business processes so they are not forced to change their processes to fit a particular piece of software.

* Easy to use. Companies need to seek out software that looks and feels familiar and works with all the other products currently used in the office by employees.

* Implementation partner. Companies should choose a local partner that has extensive experience in the software systems and industry to ensure a successful project.

Make Wise Investments

Thanks to low interest rates, the country’s investment in housing has climbed steadily over the past several years. Although that may be good news in many quarters, it’s also cause for concern. The tech industry crashed. What if the housing boom follows suit? Even Federal Reserve Board Chairman Alan Greenspan, who was previously unconcerned with the housing market’s stability, has publicly stated that the current trends in the industry are “unsustainable.” What happens when the trend cools, when investments level off, when, in the plainest terms possible, the housing boom finally slows down? The economic wave enjoyed in construction and affiliated industries may crash someday in the foreseeable future, but that doesn’t mean keeping a construction business healthy and profitable will become a notion of days gone by.

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